Monday, September 24, 2012

A friend of mine sent me a link a few weeks back with an article written by Ugo Bardi an Italian professor, with an interesting take on Seneca’s view that growth happens at a much slower pace than irreversible economic contraction.Comparing it to the Hubbert curve, which reflects natural resource production curves; he sees a similar upward path as the Hubert curve, but a much steeper path on the way down for the global economy.His basic argument is that environmental damage, coupled with resource scarcity is the kind of trigger that can lead to global economic freefall.Being that he is a physical chemistry professor, naturally he used math to prove his point.

My own personal view on the issue of an eventual collapse is that both the Hubbert curve, which many peak oil theorists believe that our global economic curve will follow, given crude oil’s importance to the economy and Ugo Bardi’s mathematical approach to predicting this trajectory are not likely to represent the real picture.A more complete picture in my view can be achieved by observing the interaction between resources, the market, innovation, fiscal and monetary policy and politics in response to the initial pressure on society, due to resource constraints on economic growth.

Current Realities:

We have to realize that we entered the era of resource constraints during the last decade.Oil prices are up about 500% from a decade ago, despite half a decade of anemic global economic growth, and food prices are up about 150% since 2000.We now have two global food riot events on the historical record.The first happened in 2008, and the second during the winter of 2010-11, known as the Arab spring. Many believe that we are headed for a third such event in just the past five years, this coming winter.

If I was to pinpoint the exact year when we entered the early stages of resource constraint dominated economic environment, the year I would pick is 2005, which is the year when now looking back, we can say with certainty that we are on a conventional crude oil production plateau.Price and technological innovation may be able to nudge production volumes up, while geological and increasing geopolitical constraints will continue to push downward on production capacity, but as we will register year after year of production going forward, the multi year average since 2005, and until production will enter irreversible decline will more or less average 2005 production levels, within a 2-3% range, as it does now as we are in the seventh year post- plateau.

When Hubert’s prediction of the peak in US oil production turned out to be remarkably accurate, it gave rise to a growing tide of believers in the concept that global oil production will follow a similar path.There is one aspect however which they failed to account for in both assessing US production going forward as well as understanding the trajectory of the world’s capacity.They failed to factor in for the fact that the market for oil is a global one.There was no market reaction to the event of the US peak in oil production in the early 1970’s, because it was a local event.There was a definite price triggered market reaction to the event of the peak in global conventional oil in 2005, which changes things drastically.

While we can claim that conventional oil production continues to be on a production plateau, total liquids production, which includes unconventional oil, as well as other liquids that are not quite oil, did register an increase of about .5% per year on average since 2005.That may be only half of long term historical increase rates in the last few decades, but it does nevertheless present the world with a very different scenario than the predicted permanent decline in production which was supposed to take the entire global economy down the same path of permanent decline.The global economy may never be the same again as of 2005, but it is still limping along at a reduced rate of average growth.

The response of the believers of peak oil theory was to point out that this cannot possibly go on forever.They expect conventional production to fall off the plateau at any moment.At that point, unconventional liquids can only keep the total liquids tally on a plateau at best, or perhaps not even that much.I personally cannot pretend that we can predict with accuracy that moment when this will happen.It is only an obvious given that it will happen, and I do believe that there is a way to estimate the maximum time we have left before that happens.

Going back to the basics of original oil resources in the ground:

We should start with the most basic estimate of the conventional global oil volume initially in the ground.This is likely to be the most reliable variable.Most estimates ranging from the USGS, and EIA to various independent geologists put this number in the 5-7 trillion barrel range.It is therefore entirely reasonable in my view to assume a 6 trillion barrel total resource base.Of that volume, about 40% is thought to be recoverable with current technology being applied today.That would give us 2,400 billion barrels which would ultimately be recovered.We cannot however count out the power of the market and human innovation, helped by fiscal and monetary policy to change that number.I believe the estimate such as the one made by Exxon-Mobil that ultimately about 60% of the oil will be extracted from conventional fields is reasonable enough.That would give us a number of 3,600 billion barrels which will ultimately be recovered.We produced about 1,100 billion barrels already.

Here I will diverge from the Hubbert model somewhat in predicting the end of the plateau.I will assume that decline will set in, not when total production equals remaining proven reserves, but when the halfway point will be reached between production and oil that will ultimately be recovered.Thus we can get the maximum length of the current plateau, which should be accurate within a range of a decade at least.Remember that I am interested in the maximum potential, not the earliest when this event might happen:

This means that the maximum length of the current plateau can take us all the way to 2040.We should also remember that we also have as large a volume of unconventional oil in the ground as we do conventional.Recovery rates will never come even close to what we can potentially see with conventional oil, but we have to remember that as long as we can maintain the market signal to go after more of this volume, the human ingenuity as well as our desire to exploit an opportunity will make more and more of these resources available.In essence, 2040 may not represent the point of complete collapse following either the Hubbert or the Seneca curve, but rather a point of further worsening of the situation.It is therefore conceivable that I may die of old age and still not live to see the point of complete collapse (I am turning 33 this week).

Justification for this view:

We already saw the market reaction to the rise in prices experienced in the last decade.There has been an undeniable trend of growth in unconventional oil production thanks to the market’s signal to produce these resources, due to a favorable price environment.The result has been that total liquid fuel production did not plateau, never mind decline.At the current price range of $80-120 a barrel, we have many new sources which can become viable, whereas a decade ago they were not.

In the absence of this market reaction, peak oil would have indeed happened as many intelligent people predicted it would.If oil prices today would only be $30-40 a barrel, which is still an increase of about 300% from the late 1990’s, current global production of liquid fuels would only be about half of today’s production volume, and the Hubbert curve, or even the Seneca curve would have already proven themselves to be correct.With the new factor of the market’s reaction in place, the Hubbert curve scenario did not hold.That is not to say that peak oil is not a real and inevitable scenario.I cannot emphasize enough that we should not be complacent, because like I said, the world economy will never be the same again as of 2005, because the age of cheap oil has ended.Things will only get worse gradually, and our ability to fix this problem will diminish due to the resulting erosion of our capabilities by slow attrition as a result of our misguided efforts to invest our remaining resources in trying to go back to the old economy, which is no longer a possibility.The point when growth is no longer possible at all will not come for perhaps many decades to come.A decelerating growth path will however feel like a permanent stagnation and even recession for most, even before the point of no growth will occur.

If we follow closely the evolution of the world’s economy since 2007, there is a very obvious trend we need to acknowledge.The financial collapse, which many attribute to a variety of different causing factors, led to monetary and fiscal stimulus as the drivers of continued normalcy, which is still far away from going back to the booming times.In essence, there is a lot more money being injected into the economy than before.With a new commitment by the European Central Bank (ECB) to print money in order to be able to purchase sovereign Euro denominated bonds, as well as the new commitment on the part of the US Federal Reserve to inject money into the economy via a mortgage backed securities buying spree, the one thing we can be sure of is that there will be more money chasing opportunities and assets.

Based on the evolution of the markets and the economy in the past few years, there is one important trend that is becoming more and more clear.There are three classes of assets which benefit from the inflow of all the freshly printed money.There is a definite grab towards assets which may lead to great returns.These assets may be somewhat risky, but the reward is worth the risk.Thus we see the great innovative companies, such as Apple do relatively well.We also see the money flow to a few stock markets around the world such as Mongolia’s, which no one else would think of playing, except for some institutions with spare cash such as banks, who received it from the Federal Reserve in exchange for junk assets.These investments do come with some risk, but the potential for returns is worth allocating some funds to.

Another important asset class which seems to be a favorite for those receiving free money from the central banks is the safe haven status sovereign bond market.In this category enters the US, German, Canadian and a few other sovereign debt issuers which are seen as safe from the threat of political upheaval or default.

The last asset class is made up of inelastic commodities.These assets only become a magnet whenever there is a hint of tightness in the supply demand balance.The main commodities where there has been tightness lately are the ones I already mentioned, oil and food.As we saw in the 2007-09 period, given the realization that supply is falling behind demand, money will flow into assets such as oil with the expectation that prices will rise until sufficient demand destruction will occur.At that point, speculators will head for the exit causing the price to crash as it did from almost $150 a barrel to $35 a barrel in the 2008-09 period.

The next stage was a stabilization in a price range which facilitated the influx of marginal sources of oil and other oil substitutes.The price range of $80-120 a barrel is now the new normal that the economy will tolerate but not enjoy, while producers will find it satisfactory for their need to produce the marginal resources at a profit.

The cycle we already witnessed will be repeated.Every time the stabilization point will happen at a higher price level, making it possible for the continued rise in liquid fuel production.With every cycle, we will see more and more victims as the market will adjust again and again towards the need to make all other production inputs cheaper as the price of inelastic commodities will continue to rise.High wage, and high environmental and human rights protection administrative entities will be abandoned as we already witnessed this process unfold for a few decades now.The basic social safety net we came to depend on in a post agrarian world will also gradually disintegrate.The stagnated power of the consumer will dictate for the need to cut costs everywhere else to accommodate the rise in price of the inelastic commodities.Life will become more and more difficult and unpleasant, but this does not yet signal collapse, just a gradual worsening of our lives.This worsening will not be felt equally by all, so there will be plenty of people who will not even realize what is happening.This trend towards a worsening of living standards, including the worsening environmental health, a decline in the access to the possibility of earning a living through being paid a decent wage, a decline in social mobility as well as a decline in financial stability due to the gradual gutting of the social safety net, will be gradual enough for most not to notice the actual trend.The root cause of the trend will not be discussed in the mainstream because the viable solutions, such as the one I proposed in my book do not necessarily fit in with currently established left/right ideology.Thus the chance of solutions being implemented is very slim.In fact, there will be many false solutions floating around, many of which will in fact only serve to advance the agenda of certain elites.

The tax cut to stimulate the economy scheme is a classic example.These schemes will only serve to further gut the basic economic structure of our society, by allowing the elites to keep more of their income, rather than contributing to some of the basic needs of society, such as the basic social safety net, infrastructure, education and other collective needs.Government deficits will become worse as their revenues will be cut, while the expected growth in revenue due to economic growth will not materialize as a result of the tax cuts.

As bad as all this may sound, none of it means that we are looking at complete collapse any time soon. It is as I said, just a gradual worsening of our situation which started last decade, and will continue without consensus on why it is happening, or what to do about it.The next stage towards the endgame is the spread of authoritarian practices on the part of government.This will only happen most likely decades from now as people will lose trust in politicians and their claims that we can go back to the good old days.Authoritarian practices will be very stealthy at first, and then gradually it will intensify and become more obvious and naked.At some point repression will rely on consensus that disobedience will be met with punishment.This stage can last a very long time as we can see with countries like North Korea, where despite many periods of intense hardship and inhumane living conditions, including mass starvation, there is little chance of the system being shaken internally, nor is there a chance that it can be done by external sources, given their choice to go nuclear.

It should be important to make note of the fact that the march of democracy throughout the world has also been reversed last decade.It is still too early to realize it, but it is not just a temporary reversal but a new trend.The Arab spring and such events might grab the media’s attention and make it seem like this is not the case, but repression is becoming the new reality for many societies around the world.Democracy will increasingly become just a formality, as is the case in Iran, Russia, Iraq and many other places where elections are indeed held but are far from free, fair, and most importantly conductive to making the will of the people resonate in government.

Summing up all these variables, it is far from realistic to expect the collapse scenario presented by Hubbert’s fans, or by mathematical formulas that prove the Seneca effect to be our expectation as presented by Ugo Bardi.It looks more like what we should expect is that following our arrival to the top of the hill, there is a long, relatively gentle slope on the way down.Eventually it will end in a deep canyon, but it might take many decades or even centuries for us to reach that canyon, if we take all the above mentioned factors into account.We should remember however that while on the way up, we quickly became accustomed to the benefits of growth, we will find it increasingly hard to cope with constantly worsening living standards, and we will find it very hard to adjust.We should also remember that even if the downward slope is gentle, once we start rolling down on it, it becomes hard to reverse course, because with time the momentum will become stronger, while we will become weaker.So if we are to address this situation, we better do it now, even if we are not faced with imminent doom, but a gradual decline in our collective standard of living, because it will still be very painful, and while perhaps it will not seem so bad when measured collectively, there will be many mini, family and even community size collapses within the collective.This could affect any one of us.

Monday, September 17, 2012

In the August article on this topic, I concentrated on the results of Romania’s 2011 census and the worrying results that no one seems eager to address.Romania’s population dropped from about 23.5 million in 1989, to about 19 million by 2011.Most official international projections indicated that Romania might not fall under this number for at least another twenty five years.Total yearly births have dropped from about 370,000 per year to about 200,000.There are now fewer people officially employed in the non-farm sector as there are pensioners.If things continue on, Romania’s non-Rroma yearly births may drop to as low as 20,000 per year at this rate.The example of Romania should be a worrying sign for Europeans overall.It should be an especially worrying sign for the Eastern Europe region, because we may in fact see the incredible happen in just a few decades in the form of not only bankrupt but failed states appearing on the continent.

On the surface, things may be looking better as we look west.If we dig under the surface however, it is increasingly clear that the European population is in deep trouble.The troubling fact is that official institutions do not give us a realistic and honest picture of the situation, as I already indicated to be the case with Romania, where they missed the mark by a very wide margin.In order to help better understand the true situation, I decided to look at three Central and West European countries and their latest stats on their demographic evolution.The countries I chose are Hungary, Slovakia, and Germany, because each country represents a different situation due to various circumstances.

Slovakia:

In the past decade, Slovakia managed an impressive economic feat of closing the gap in GDP per capita with its western peers significantly.The 2011 census also shows that Slovakia actually recorded a slight increase in its population from the last census carried out in 2001.Its total births tally also registered an impressive bounce back from about 50,000 live births per year, to 60,000.The increase in births is a reflection of increased optimism on the part of the population as a result of the increase in economic affluence, as well as an evident increase in the inflow of immigrants, which gave the country an influx of youth.On the surface therefore it appears that Slovakia is on the right path, and there should be little reason to worry.

Since the last census, this country’s Slovak population dropped from 4.6 million to 4.35 million.The second largest and traditional population of Slovakia, the Hungarian minority declined from 520,000 to 460,000 during the same period.On the other hand, those who fall under the “others”, or undeclared category increased from just 74,000 to 408,000 over this ten year period.The Rroma minority, which officially makes up about 2% of the population, is also on an increasing path[i].In other words, the traditional Slovak-Hungarian dominated demographic of Slovakia is experiencing replacement.It is a different situation from that of Romania, which is experiencing outright population shrinkage, but it is in some ways similar, since the population that traditionally inhabited the region for over a thousand years is disappearing at almost a similar pace as Romania’s population.

The next few decades will see two possible outcomes for Slovakia.Slovaks will either become a minority by about 2050, if the influx of other populations continues, or if the influx stops, its population will start shrinking dramatically, following a similar path as Romania’s has already been established.Some may argue that the influx of other populations will mainly serve to reinforce the majority Slovak population, but I disagree with that assumption.I believe that a declining population cannot assimilate and absorb a large foreign influx.While the overall demographic data tells us about the decline in the Slovak population overall as a percentage of the total (from 85% to 80% over ten years), if we were to only look at the non senior citizen population, that percentage drop would be even more dramatic.So, the country’s young population is increasingly foreign, which means that they will likely form ethnic communities, which will not melt into the general population.As for the ethnic Hungarian minority, which declined from 10% of the population to just 8.5% over this ten year period, it will likely disappear in a few decades.

Hungary:

In the case of Hungary, we have a country which may end up developing differently than most other states in Europe.It has a similarly low birth rate to most other countries.It has an aging population, and it already experienced a significant 5% population decline since the collapse of communism in 1990.Economically, it developed just enough to prevent the same kind of population outflow that Romania experienced, which is the main factor thus far for its dramatic 18% drop in its population since 1990, but it actually lags behind other countries such as Slovakia, so it is not as attractive to potential foreign migrants as Slovakia or the far more prosperous countries in Western Europe.

Hungary does have one potential advantage however, stemming ironically from a national tragedy that happened almost a century ago, which might make it one of the few countries with a chance to survive not only as a state but as a nation state for at least a few more decades.Its potential advantage stems from the massive loss of territory and importantly one third of the ethnic Hungarian population, due to French strategic considerations following the First World War.Hungarians were seen as potential allies of the Germans in any future confrontation, while the French believed that many neighbors of Hungary such as the Serbs, Romanians, and Slovaks could be convinced to join the French side against the Germans (A calculation that mainly turned out to be wrong in the Second World War).In the past two decades, there has been a considerable inflow of ethnic Hungarians from neighboring countries such as Romania and Slovakia.That, together with a trickle of foreign immigrants has made the difference between Hungary’s gentle population decline and Romania’s demographic freefall.It also allowed it to remain one of the most homogenous populations in the region, which was already the case following the redrawing of the regional map almost a century ago.Hungary is over 90% composed of ethnic Hungarians, even if we were to consider the Rroma phenomena, which gives the suspicion in the entire region that this minority is much larger than official census stats may suggest, because as I already mentioned, many of them do not reveal their true ethnic identity.

I should emphasize however that this is just a potential advantage, by no means a sure thing.To take advantage of this opportunity, Hungarians would have to show a level of cultural maturity which I personally doubt they can muster.They would have to get their economic house in order, which will not be easy given the overall economic situation in Europe.They would also have to give up on increasingly elusive dreams of recuperating not only people but also territorial losses they suffered.If they fail to grab on to this opportunity, the most likely outcome will be a loss of both the Hungarian national state as well as the loss of the ethnic Hungarian populations and communities currently living in significant numbers in Romania, Slovakia, Serbia and Ukraine.They have to realize and understand the demographic changes that took place since 1918 in the territories lost to neighboring countries.In Transylvania for instance, ethnic Hungarians went from being about one third of the population, to about 19% currently.The Romanian majority, which was slim at just over 50% in 1918, now makes up over 70% of the population.The German minority, which made up 12% of Transylvania’s population, has already disappeared, and has largely been replaced by the Rroma minority.Hungarians will be next, regardless whether they decide to hang on, or whether they allow their young people to pursue a career and move elsewhere, preferably Hungary from a demographic perspective.This is not easy however, because there are 1,000 years of history and cultural development that they would be leaving behind.It is better to secure a future than to hold on to the past in my view, but I believe most Hungarians living in Hungary, or in the neighboring countries, cannot find the objectivity to identify the true nature of their situation.How can they, when almost no one is talking about the true demographic realities on the continent?

Germany:

Moving westward, the most important country economically and politically speaking on the continent is Germany.Here again we have what on the surface seems to be a stable demographic situation, masked by a continued inflow of immigrants.In reality, the real situation is one of immigration policy covering up the gradual disappearance of one of Europe’s most important ethnic entities.Live births in Germany have declined from the 900,000 level in 1990, to under 700,000 in 2011[ii].As bad as that may seem, if we dig deeper, it gets worse for the German people.Only about three quarters of its population of 82 million is ethnically German.From the less than 700,000 births, far less than three quarters are ethnically German, because some of the Immigrant communities bring a culture more inclined towards having children, and additionally the non German population is a full decade younger.If we take these facts into consideration, there are perhaps only about 400,000 ethnic German births in Germany per year.Looking forward, Germany will no longer be the country of Germans in about two to three decades.At a birth rate of 1.2 per woman, the ethnic German births will shrink similarly to what I discussed in Romania’s case. By the turn of the next century, German births will likely only amount to about 50,000 per year, unless other factors will work to improve or worsen the situation.

Note:

The claim of only 50,000 ethnic Germans being born by 2100 is based on a simple mathematic calculation based on current trends.It assumes each reproductive generation is twenty five years, and the 1.2 children per woman trend, which is the case now, will hold.I should also note that while official statistics show that Germany’s birth rate is somewhat higher at around 1.38 children per woman, we have to remember to adjust for the foreign element within German society, which has a higher birth rate.

Generation one: 2011-2036.

Currently 400,000 births, by 2036, 300,000 (generous estimate).Twenty five year average therefore will be 350,000.

8,750,000/2 = 4,375,000 women of child bearing age, each will have 1.2 children.

4,375,000 x 1.2 = 5,250,000 births, half of which will be females.

Generation three: 2061-2086.

5,250,000/2 = 2,625,000 women of childbearing age, each will have 1.2 children

2,625,000 x 1.2 = 3,150,000 births, half of which will be female.

Generation four:2086-2111.

3,150,000/2 = 1,575,000 women of childbearing age, each will have 1.2 children

1,575,000 x 1.2 = 1,890,000 German children born during the generation/25 years = 75,600 German children born per year, without considering the effect of ethnic intermixing, which should become more and more common as the German population shrinks, while the foreign population increases.It is reasonable therefore to assume that the number of German children being born in Germany by 2100 will be 50,000 per year at best.To put that into perspective, Romania’s Rroma minority is thought to have about the same number of births per year.So, the great German nation, which just seven decades ago was thought of as a threat to the entire world, and even now is the fourth largest global economy, will be reduced at least demographically to a minority living in a far less significant European country in less than a century.

It is hard to contemplate what effect such a dramatic shrinkage in its ethnic German population will have for Germany, and for the entire continent, which is facing a more or less similar situation.One thing that is for certain is that unless something will change urgently, we are looking at a similar population replacement scenario as was the case with the natives of North America.The case of Germany as well as that of the Eastern and central European states we looked at, more or less represents the situation of the entire continent.Some countries such as France, Britain, Sweden and a handful of others still have a relatively healthy demographic situation.Their birth rates may not necessarily amount to full replacement rate, but the decline is gentle enough to possibly see them through the century, without experiencing complete population collapse or replacement.

Conclusions:

There is one great difference between what happened to the Native Americans in North America and what is happening in Europe now.It is hard to see what if anything the Native Americans could have done to prevent their people from nearing extinction.The growing power of the Europeans at the time, catapulted them to becoming masters of the world by the 19’Th century.The Native American tribes on the other hand were far behind much of the rest of the world in terms of economic and military capabilities.The Europeans of today, of whom we can already talk of as a doomed society given the evidence, are far from a powerless entity.Militarily speaking, Europe is still a force to be reckoned with.Economically speaking, the EU is the world’s largest economy.It is strange therefore to consider Europeans on the endangered peoples list.Traditionally, especially when it comes to the world view as seen through the eyes of the political and intellectual left, this list is reserved for remote tribes in the Amazon or other hard to reach places.As I pointed out however, the evidence shows that some of those remote tribes may actually outlast many European cultures.

Aside from the seemingly unbelievable future trend line I presented, there is also the political correctness aspect of this issue.Western society has in recent decades adopted an attitude of intolerance towards itself.It is generally frowned upon to consider the potential disappearance of Europeans and the dozens of cultures represented on the continent as a problem.It has been agreed to in terms of cultural values that anyone voicing concern about this issue should be ostracized and deemed to be unworthy of belonging to the mainstream.Truth is that if I would have been born in Western Europe, or North America, I would not even dare to touch this subject.My childhood experienced as a citizen of the brutal Socialist Republic of Romania thought me a very important lesson however.One ought to resist intimidation directed towards achieving censorship, regardless whether the pressure to do so comes from the threat of brutal force, or whether it comes from social pressures, backed by the power to relegate people to the fringe of society socially and even professionally.Perhaps my inheritance of cultural stubbornness as an ethnic Hungarian may also have something to do with my own rebellious nature.While I believe that there ought to be some limits to free speech, such as the limits meant to curb people’s ability to incite to hatred, I also believe that a society can only be healthy if free flow of information and ideas is allowed and even encouraged.We ought to be able to discuss most subjects in a civilized, factual, honest and objective manner.I hardly think that labeling someone as prejudiced or racist despite making a point based on solid evidence and facts is constructive and healthy, as has been the case on numerous occasions lately[iii].If we are culturally unable to address this issue within public discourse, is it any surprise that we Europeans are deserving of occupying the endangered species list?

The point of no return for the Native Americans was perhaps somewhere towards the end of the 18’th century.If before then, they would have banded together, formed a broad coalition and would have adopted some of the right cultural traits of the European invaders, perhaps at the very least they could have succeeded in carving out a territory for themselves in which they would have continued to survive, and would perhaps be a prominent society today.We cannot fault them for not doing so however, because we have to remember that they had no way of understanding what was happening to them.They were not able to think of themselves as inhabitants of a continent under the threat of colonization, even though that was the case.They only saw themselves through the mentality of individual tribes or regional confederations acting in response to a new encroaching entity in the form of European colonists.

For Europeans there is no excuse.We live in the era of information, we therefore should all be aware of what is happening, yet few people actually are, and even fewer people believe it should matter.In other words Europeans doomed themselves the moment consensus was formed that their ethnic and cultural identities are not as worthy of salvation as that of a small tribe living in the Amazon.Furthermore, anyone advocating to the contrary, is an enemy of society, so the current consensus is being defended with ruthless ferocity.

The point of no return for Europeans is perhaps about a generation from now.In the absence of swift cultural change meant to erase the current values of self loathing that can only lead to one possible outcome, as well as smart action meant to redress the situation, the point of no return will be crossed. To most people the event will seem like a non-event, since most changes are happening gradually enough to escape our short attention span. The ability to make a decision to the contrary of the current trend towards extinction will become ineffective and impossible after that point, so if our children and grandchildren will not like the consequences, it will be too late to change course.It seems like something we should be discussing with great concern and urgency, yet we are not.I believe many years from now, when future generations of humans will look back at this, they will find that from all the stories of extinct societies, the one of the Europeans will be by far the strangest one.The main factor being a social taboo prohibiting talk of this cultural extinction long before the point of no return has been breached, will for certain present future anthropologists with the most puzzling society they will ever have the opportunity to study.

[iii] The most recent example I can think of was the labeling of Mitt Romney as prejudiced and even racist when he made a remark in terms of culture and economic development during a visit to Israel.He may have applied the theory to an unsuitable situation, but the basic theory that culture affects economic development is fair game in public discourse, given that it can be backed by solid evidence.I myself provided evidence of this in my book, citing the case of post communist Eastern and Central Europe, and the role culture played in economic development gaps between these countries.

Monday, September 10, 2012

In the aftermath of the Kyoto fiasco one would think that our elites would have learned some very valuable lessons.The most important lesson they should have learned is that there is no point relying on voluntary goodwill in order to solve global problems such as climate change.

Yet here we are again with an even more flawed scheme set to be hammered out and due to be set in motion by 2020.This agreement was signed, in Durban, South Africa in 2011, and it involves a pledge of annual aid adding up to $100 billion dollars from the “rich” nations, meant to help poor nations cope with climate change, as well as to help them implement green technologies meant to help them develop in a more green direction.Sounds like a noble endeavor, worthy of the praise of anyone who cares about the environment and people.The Green Climate Fund (GCF) is on paper the most ambitious attempt at managing a global problem ever attempted.For this year, they will do the “hard” work of picking a place to headquarter the administration apparatus for this fund.The “small” detail of finding the funds will be hammered out as we approach the date of implementation.

Joining our elites on their planet:

I personally think that even from 2011, till now things have changed so much, that we should already write off this proposal.I simply don’t see where we could come up with $100 billion in contributions per year.In fact, I doubt, we will be able to maintain even the current $10 billion yearly contribution, which was originally agreed to in 2009, mainly to help poor countries cope with the effects of climate change.But let us join our elites on the planet where they evidently live, and let us pretend we have the money.Will it help?

A hundred billion dollars sounds like a very large sum, and when it comes to having to come up with it, it seems like a colossal challenge.People automatically assume that since we intend to throw so much money at this problem starting from 2020, the greenhouse gas emissions problem will surely be resolved. But let us analyze the true effect on a global scale.

On one hand, we have the stagnated developed economies, which in the best case scenario will recover to a point where with investment in our own economies in green technologies, we could achieve zero growth in emissions levels.We do have some challenges, including the increasing intensity of emissions coming from the extraction process of hydrocarbons, such as is the case with Canada’s oil sands.Other than that, with our stagnated populations, and stagnated rate of capital accumulation, we can expect our economic activity to at the very least no longer contribute to the growth in emissions.

The developing nations just recently surpassed the developed nations in greenhouse gas emissions, and despite our stagnation, in the absence of a worldwide financial and economic crisis, they will probably continue to increase their emissions at a very fast pace.Between 1990 and 2009, global emissions rose by about 40%, and they would have risen by 42% if it wouldn’t have been for the heroic effort on the part of the Europeans and a few others around the world to keep their emissions levels at 1990 levels as agreed to by signing and ratifying the Kyoto protocol.This $100 billion yearly investment is supposed to help poor countries continue to grow at their current pace, without repeating the rise in global emissions we saw in the previous decades, most of which is attributable to them.

I take issue with the assumption that it would really have a big impact on emissions.First of all we have to remember that a large part of the fund will be spent on combating the effects of climate change, not on preventing it.Aside from that, we have to remember that this would be an investment infusion.The effect of any investment infusion in an economy is that it makes it grow faster.In other words, we are not looking at displacing fossil fuels from economies growing at a pace of maybe 6%, but perhaps 8% instead, as a result of the stimulative effect our investment infusion would have, which means that there will be an automatic increase in energy demand that otherwise would not have been there.This will also ease the constraint on economic growth we currently have courtesy of conventional resource constraints, so it is hard to say what the overall effect will be on developing nation economic performance, but we should not ignore this fact.

It is even possible that in the end, this will not have any effect on greenhouse gas emissions growth.After all, Kyoto did not make much of a difference either, despite all the self sacrifice and self inflicted loss in economic competitiveness that those who did the heavy lifting incurred.We are forgetting that this will in no shape or form address the problem of the still growing population in the poor regions.As these people become more prosperous, they will demand to eat more meat, increasing methane emissions drastically.They will also desire to drive cars. Even if they will mainly choose small fuel efficient cars, the shear size of the population of the developing world is enough to offset gains made by introducing more solar and wind power to their economy.

Back to our world:

Now for the big question; where will the money come from?This has not been agreed to yet, and I see no way of coming up with even a fraction of it.So let us take each relevant region one by one:

North America:

The US is not suffering the same level of stagnation as the EU, but it is also further from actually addressing the $trillion+ yearly deficits it is running.One might argue that given that deficits are already so big, adding maybe another $30-40 billion per year will not even be noticed.Given that republicans are looking to cut funding for baby formula and food stamps for the growing numbers of the impoverished living in the land of the rich, I think it would be extremely difficult to commit to any funding of this scheme.Furthermore, there is strong public opposition to doing anything on climate change locally or globally, courtesy of a very robust campaign to distort the facts and misinform the masses.The only way we can see any money appear from the US for this fund is if the amount will be small enough to fly under the political radar, such as a billion dollars or so.But then what is the point?Reality is that the US will likely renege even on its current contribution to this fund, because there are cuts coming to their budget and funding international programs is never high on the list of spending preferences.

Canada is in much better fiscal shape than the US, but it is also a much smaller country, and its population is emotionally attached to the concept of prudent government that led them to the current solid fiscal position in the first place.Canada had a balanced budget and a declining debt to GDP ratio for over a decade before the 2008 financial crisis hit.All mainstream political parties have to declare their allegiance to working towards having a balanced budget again in order to maintain public support.So once again, as is the case with the United States, we should not expect large sums being committed from this country.

Europe (The champions of voluntary goodwill)

Europeans kept their greenhouse gas emissions at 1990 levels at the cost of losing economic competitiveness, and growth momentum as a result.Now, they are caught in a life or death struggle to save themselves from complete economic collapse.Some countries are still solid economically and fiscally, as is the case with Germany and a few other members of the union.Half of Europe is struggling to compete in the global economic village however, and as a result, they are now experiencing economic and fiscal difficulties.The healthy half is on the hook for having to bail out the weaker members of the union in order to save themselves from being dragged down with them.If the US were to allocate a generous sum of money to the fund, I could see the embattled Europeans doing the same.We should not expect them however to once again unilaterally shoulder the burden.The political will and the much needed public support are not there.

The rest:

Australia is in good fiscal shape and it could certainly contribute some funds, but it is also a small country compared to the EU collective, or the US.Japan has been known for supporting goodwill initiatives in the past, but let us not forget its difficult fiscal as well as economic situation.This is the country that just suffered one of the worst environmental disasters in human history.The fiscal and economic costs will likely be significant.Other than that, I doubt we can rely on any other goodwill crusaders from within our “global village”. Some Arab states could certainly afford to pay into this fund.Their potential contribution however cannot be great, because we are living in the new era of the aftermath of the Arab Spring, and their number one priority is to invest in keeping their masses docile.

Conclusion:

As is the case with many other problems humanity faces locally or globally, the situation with the UN climate fund once again proves the unfortunate reality of humanity’s impotence when it comes to dealing with the challenges ahead of us.We have known about the possibility that humans are causing our climate to change for many decades now.

From the left, the response was the Kyoto fiasco, and now this even bigger fiasco, as well as many calls for individual goodwill and self sacrifice, which so far made no difference, nor will they make a difference in the future.Two decades and much economic viability and goodwill were wasted on Kyoto.This current decade will be wasted on yet another plan, which does not even have a chance of being implemented, nor is it clear that it can deliver if it was ever to be funded.No doubt, after 2020 when the left will once again be left disappointed by the lack of voluntary self sacrifice on the part of the “rich nations”, which are not so rich anymore, will come up with yet another proposal, just as dependent on voluntary goodwill as the last two failed initiatives.In other words, they see the problem, but ideological indoctrination will prevent them from ever accepting anything but voluntary goodwill as the mechanism to deal with this or any other challenge.

On the right, things are far simpler.There is a general tendency for ideological indoctrination which leads to high levels of skepticism when it comes to scientific findings.When it comes to climate change, which is by no means an easy scientific topic, easy to prove beyond any doubt, it is a no brainer to attack the credibility of the science used to support the call to action on this issue.The argument against the validity of the call to action on climate change is further reinforced by the flawed and ultimately harmful proposals for action coming from the left.Given the prospect of further losing economic competitiveness and ultimately their jobs, western workers often prefer to close their eyes to scientific proof, which many cannot fully understand anyway, and chose to believe the right instead.

There is another way.The way forward needs to offer a mechanism that does not entirely depend on voluntary goodwill and self sacrifice.In fact when it comes to the western middle class the opposite is true, when we consider my proposal for sustainable development as outlined in my book.There is a definite advantage that is to be gained, because we will no longer have to pay for more stringent environmental and worker protection rules, with resulting job losses, in favor of countries which do not bother to protect humans or the environment.The unfortunate thing is that the sustainability trade tariff does not fit in well with the ideological agenda of either side, thus neither side will ever embrace and throw their support behind this initiative or any other, which might not fully support their ideologically driven point of view.So instead, we are stuck with $100 billion per year UN funds, which will never materialize, nor would it make such a great difference even if it was to materialize. We will continue on, year after year, decade after decade with flawed solutions, until there will no longer be a point to urging action on climate change, or any other global sustainability issue, because nature will take the same good care of us as we do for it now.At that point, individual survival through securing the most basic needs will become the most pressing need.

About Me

Author of book "Sustainable Trade". Book's central subject is a proposal for the elimination of all current bilateral, and multilateral trade agreements, in favor of a new tariff system meant to encourage sustainability. Double honors degree in History and Anthropology, and a B.A in Economics.